Monday, February 14, 2005
market sets itself up for the next leg down
Last Friday, the US market vaulted higher after an uneventful first hour to finish the week on a high note. The Dow is now a mere 40 odd points shy of a new 52-week high while the S&P and NASDAQ look poised to challenge their Dec04 highs. The market appears to have a date with destiny on Feb 18, options expiration day. In other words, the market seems to be magnetised to higher prices going into expiration day.
A move over S&P 1200/05 that holds, especially on a repeated closing basis, will portend a move to 1225, followed by 1250/60. However against this bullish backdrop, research has indicated that the majority (68%) of down Januarys are followed by down Februarys. Moreover, amongst those Februarys that were up despite a down January, the market tended to see a significant peak going into March or early April.
So although the S&P appears ready to deliver a decisive test of its Dec04 highs, the research statistics show that the bulls may be on the horns of their own dilemma --- and sooner rather than later.
Many important pivots occured in March during the last four years. March 2000 saw the market rally to an all-time bull market high (or should we say bubble high), followed by the commencement of the secular bear market (that I believe we are still in). March 2001 saw an important inflection point, as the market made an interim low before beginning a bear market rally that failed spectacularly in the face of Sept 11. March 2002 was an interim high --- the subsequent failure of that rally saw the market nose-dive to significant bear market lows. March 2003 was the low of the three-year bear phase; the rally that commenced from that point on appears to continue unabated till today. March 2004 was yet another important inflection point, as it marked the weekly closing high of the S&P for the first 10 months of the year --- a local high that when successfully challenged and overcome in Nov04, saw the S&P vault upwards and STAY upwards.
So the months of March during the last four years saw a high-low-high-low pattern. Will we see a high this March, as per the pattern? March 2005 is exactly 5 years from the all-time bubble top. Five years or 60 months is an important time span --- witness the 5 year advance from Aug 1982 to Aug 1987 that saw the market go from a secular low to a local high that burst spectacularly with the famous crash. Then, there was the important peak in 1990 followed by the major 1995 low that was the beginning of a virtually parabolic 60-month run-up into the first quarter of 2000.
When everything is going well, it pays to keep an eye on any cracks in the technical picture. With sentiment at the recent low unsupportive of the kind of bearish psychology that typically marks the beginning of a long-lasting new leg, it will profit us to keep an eye on developing cracks in the bull case.
A move over S&P 1200/05 that holds, especially on a repeated closing basis, will portend a move to 1225, followed by 1250/60. However against this bullish backdrop, research has indicated that the majority (68%) of down Januarys are followed by down Februarys. Moreover, amongst those Februarys that were up despite a down January, the market tended to see a significant peak going into March or early April.
So although the S&P appears ready to deliver a decisive test of its Dec04 highs, the research statistics show that the bulls may be on the horns of their own dilemma --- and sooner rather than later.
Many important pivots occured in March during the last four years. March 2000 saw the market rally to an all-time bull market high (or should we say bubble high), followed by the commencement of the secular bear market (that I believe we are still in). March 2001 saw an important inflection point, as the market made an interim low before beginning a bear market rally that failed spectacularly in the face of Sept 11. March 2002 was an interim high --- the subsequent failure of that rally saw the market nose-dive to significant bear market lows. March 2003 was the low of the three-year bear phase; the rally that commenced from that point on appears to continue unabated till today. March 2004 was yet another important inflection point, as it marked the weekly closing high of the S&P for the first 10 months of the year --- a local high that when successfully challenged and overcome in Nov04, saw the S&P vault upwards and STAY upwards.
So the months of March during the last four years saw a high-low-high-low pattern. Will we see a high this March, as per the pattern? March 2005 is exactly 5 years from the all-time bubble top. Five years or 60 months is an important time span --- witness the 5 year advance from Aug 1982 to Aug 1987 that saw the market go from a secular low to a local high that burst spectacularly with the famous crash. Then, there was the important peak in 1990 followed by the major 1995 low that was the beginning of a virtually parabolic 60-month run-up into the first quarter of 2000.
When everything is going well, it pays to keep an eye on any cracks in the technical picture. With sentiment at the recent low unsupportive of the kind of bearish psychology that typically marks the beginning of a long-lasting new leg, it will profit us to keep an eye on developing cracks in the bull case.
